For the strong-hearted investor, international funds may be profitable

January 18, 1998|By Ellen Uzelac | Ellen Uzelac,SPECIAL TO THE SUN

The financial crisis in Asia may have spooked many international investors, but for the hardy, overseas investing could be the smartest financial move they make this year.

In fact, some money managers and industry analysts are expecting international and global equity funds to produce more investor profits in 1998 than just about any other sector.

"The area we see as being the most likely to succeed, in the next year or so, are international funds in spite of what's going on in Asia. There's huge sentiment for bottom fishing," according to Louis Harvey, president of DALBAR, a Boston financial consulting firm.

"Dump your money into it -- if you have the stomach for it. I'm not suggesting you won't have more volatility, but I think the international market will separate the wheat from the chaff in terms of investment profiles," he said.

In the last few years, the number of international stock funds has grown almost two-fold to 578, with total net assets of $213.7 billion, according to the Investment Company Institute (ICI) in Washington. Meanwhile, 194 global equity funds, which unlike international funds include some U.S. holdings, have attracted $133.8 billion.

DALBAR, in fact, expects that in another decade overseas funds will account for half of all mutual funds, now a $4.3 trillion industry.

Still, the troubles in Asia have caused a lot of investors to put international funds in the rear-view. International funds have recently experienced about $2.5 billion in net redemptions since the Asian markets' violent plunge.

As Harvey views it, U.S. investors have reached a fork in the road. "Do you want to run for cover and continue to invest in the U.S. equity market or take the risk, which really means going overseas? Some people have now experienced the rewards of risk, and they are going to be inclined to take some more."

Overall, money managers generally recommend that 15 percent to 30 percent of assets be allocated internationally, primarily through mutual funds because it is almost impossible for an investor to track individual foreign stocks.

"The further away you get from things you know well, the better advised you are to invest with a professional [financial adviser] and not try to do it all yourself," noted Craig Ueland, chief financial officer and managing director of international operations for Frank Russell, the research and consulting firm in Tacoma, Wash., that produces the Russell 2000 index.

Certain economic realities -- high valuations in the United States, free trade agreements, increased competition worldwide, low inflation across the globe, among them -- have made international investing attractive.

Consider this the next time you bite into your Whopper: Burger King is now partly owned by a British concern. And Motel 6, that ubiquitous roadside inn that promises "to keep the lights on for you?" It is French-owned.

So what are the world's attractive regions right now?

ASIA -- Pacific Rim stocks have taken a beating in recent months, but analysts do not expect that region to remain a whipping post long-term. Asia remains a favorite of Ed Osborn, a principal in the San Francisco investment advisory firm, Bingham Osborn & Scarborough, which manages $375 million in client portfolios, nearly a quarter of that in foreign investments.

"It's where the best values are," said Mr. Osborn. "You can buy at historically low levels but you'll be buying into historically high volatility. As long as you understand that, it can make a lot of sense."

LATIN AMERICA -- Although Asia's troubles have hit Latin America hard, the region -- the best-performing economy in the world until October -- continues to rate highly with money managers. "While the Asian fallout could cause Latin America to be rocky in the short term, we expect the region to experience another good year in 1998 as investors focus on the continuing reform and privatization movements in many of these countries and as economic growth returns to above-average levels late in the year," observed M. David Testa, chairman of Rowe Price-Fleming International.

EUROPE -- Europe, along with Latin America, offers the best balance of risk and return opportunities, according to Testa. The reason? Europe is now where the United States was in the early 1990s.

Pub Date: 1/18/98

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